Moody's downgrades Tata Motors rating, changes outlook to negative

Moody's Investors Service on Thursday said it has downgraded Tata Motors rating as the company faces tough market conditions amid the coronavirus pandemic.

The rating agency said it has downgraded Tata Motors' corporate family rating (CFR) and senior unsecured instruments rating to B1 from Ba3.

"The outlook on all ratings has been changed to negative from ratings under review," Moody's Investors Service said in a statement.

This rating action concludes the review for downgrade initiated on March 26 2020, it added.

"The downgrade reflects the sustained deterioration in auto maker's credit profile," Moody's Vice President and Senior Credit Officer Kaustubh Chaubal said.

The company's credit profile was already under pressure due to lower auto sales and falling demand in key markets even prior to the coronavirus outbreak, he added.

"The pandemic has amplified the pressure on Tata Motors' cash flows and will likely result in a prolonged period of weak credit metric," Chaubal noted.

The rating downgrade reflects the acute challenges being faced by the company with the overall auto sector witnessing slowing sales stemming from sluggish economic activity, weak liquidity, tight financing norms, and poor consumer sentiment, the rating agency said.

Although the company commands a 43 per cent market share in the domestic commercial vehicle segment, Moody's said it expects around 25 per cent decline in its wholesale unit sales in fiscal 2021 on the back of a 34 per cent decline in fiscal 2020.

"Such weak demand prospects put additional pressure on its credit profile as this segment has subsidised the loss-making passenger vehicle operations for several years," it noted.

The company's domestic passenger vehicle business continues to lose market share and reported losses in fiscal 2020, the agency said.

Moody's expects the company to curb the unit sales decline to around 10 per cent in fiscal 2021 from 37 per cent the prior year, reflecting the company's new model launches compliant with the transition to Bharat VI emission norms from 1 April 2020, it added.

That said, the company's ability to quickly turn around this business remains challenged, especially since the segment is crowded with domestic and large multinational automakers, it said.

Commenting on Tata Motors' British arm Jaguar Land Rover, Moody's said it believes that a degree of market recovery, ongoing model launches, including refreshes and the company's extended restructuring program, will lead to an improvement in performance by fiscal 2022.